McDougan Associates (USA).McDougan Associates, a U.S.-based investment partnership, borrows 70,000,000 at a time when the...
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McDougan Associates (USA).McDougan Associates, a U.S.-based investment partnership, borrows 70,000,000 at a time when the exchange rate is $1.3326/. The entire principal is to be repaid in three years, and interest is 6.150% per annum, paid annually in euros. The euro is expected to depreciate vis--vis the dollar at 3.3% per annum. What is the effective cost of this loan for McDougan?
Complete the following table to calculate the dollar cost of the euro-denominated debt for years 0 through 3. Enter a positive number for a cash inflow and negative for a cash outflow.(Round the amount to the nearest whole number and the exchange rate to four decimal places.)
Year 0
Year 1
Year 2
Year 3
Proceeds from borrowing euros
70,000,000
Interest payment due in euros
Repayment of principal in year 3
(70,000,000)
Total cash flow of euro-denominated debt
Expected exchange rate, $/
1.3326
Dollar equivalent of euro-denominated cash flow
$
$
$
$
What is the effective cost of this loan for McDougan?
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